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RATIOS

1.

2.

LIQUIDITY RATIOS
1.a.

CURRENT RATIO

Current assets
--------------------Current liabilities

1.b.

QUICK RATIO

Current assets inventory prepaid expenses


------------------------------------------------------Current liabilities

1.c.

CASH RATIO

Cash + Marketable securities


-----------------------------------Current liabilities

CAPITAL STRUCTURE RATIOS / LEVERAGE RATIOS


2.a.

EQUITY RATIO

Shareholders Funds**
-----------------------------------------------------------------Total capital employed (own funds + borrowed funds)
**Shareholders Funds =
Equity share capital
+Preference share capital
+Reserves
-Fictitious assets
-Accumulated losses

2.b.

DEBT RATIO

Total debt (short term + long term borrowings)


-----------------------------------------------------------------Total capital employed (own funds + borrowed funds)

2.c.

DEBT EQUITY
RATIO

Total liabilities
-------------------------Shareholders Funds
OR
Alternative formula
Long term debt
------------------------Shareholders Funds

2.d.

CAPITAL GEARING
RATIO

Fixed interest bearing capital


-----------------------------------------------------------------------1

Equity share capital + Reserves Losses Fictitious assets


= Preference share capital + Debentures + Long term loans
--------------------------------------------------------------------Equity share cap. + Reserves Losses Fictitious assets
Note :
If there are no preference shares, capital gearing ratio =
debt equity ratio (as per alternative formula)

3.

4.

LONG TERM SOLVENCY RATIOS


1.

DEBT EQUITY
RATIO

As above

2.

CAPITAL GEARING
RATIO

As above

3.

Debt to total assets

Total liabilities
------------------Total assets

4.

Proprietory ratio

5.

Fixed assets to long


term funds

Shareholders funds
------------------------Total assets
Fixed assets
--------------------Long term funds

COVERAGE RATIOS
4.a.

DEBT COVERAGE
RATIO

Earnings available for debt service**


---------------------------------------------------Interest + Installments (grossed up for tax)
** Earnings available for debt service =
Earnings before interest and tax (EBIT)
+ Non-cash operating expenses like depreciation and
other amortisations
+ Non-operating adjustments like loss on sale of
fixed assets

4.b.

INTEREST
COVERAGE RATIO

EBIT (adjusted as above)


------------------------------Interest
2

4.c.

5.

PREFERENCE
DIVIDEND
COVERAGE RATIO

Earnings after tax (EAT)


---------------------------------Preference shares dividend

ACTIVITY RATIOS or TURNOVER RATIOS or PERFORMANCE RATIOS or


ASSET MANAGEMENT RATIOS
Note : Turnover (sales) will always be the numerator

5.a.

CAPITAL
TURNOVER RATIO

Sales
--------------------------------------------------------------Capital employed (own funds + long term borrowed
funds)

5.b.

FIXED ASSETS
TURNOVER RATIO

Sales
-------------------------------Average Fixed assets **
**Average F. A. = Opening F.A. + Closing F.A.
-----------------------------------2

5.c.

TOTAL ASSETS
TURNOVER RATIO

Sales
-------------------------------Average Total assets **
**Average T.A. = Opening T.A. + Closing T.A.
-----------------------------------2

5.d.

WORKING CAPITAL
TURNOVER RATIO

Sales
-------------------------------Average Working capital **
**Average W.C. = Opening W.C. + Closing W.C.
-------------------------------------2

BREAK UP OF WORKING CAPITAL TURNOVER RATIO


5.d. INVENTORY
Sales
i.
TURNOVER RATIO
-----------------------3

Average inventory**
OR
Cost of goods sold
----------------------Average inventory**

(Better option)

** Average invent. = Opening + closing Inventory


-----------------------------------2
5.d.
ii.

DEBTORS
TURNOVER RATIO

Sales
-----------------------Average debtors**
OR
Credit sales
----------------------Average debtors**

(Better option)

** Average debtors = Opening + closing debtors


-----------------------------------2
AVERAGE
COLLECTION
PERIOD

Average debtors
------------------------------Average daily credit sales**
** Avg. Daily credit sales = Total sales in a year
-----------------------365

5.d.
iii.

CREDITORS
TURNOVER RATIO

Purchases
-----------------------Average creditors**
OR
Credit purchases
----------------------Average creditors**

(Better option)

** Average creditors = Opening + closing creditors


------------------------------------2
AVERAGE PAYMENT
PERIOD

Average creditors
------------------------------------Average daily credit purchases**
4

** Avg. Daily credit purchases = Total purchases


------------------365

6.

PROFITABILITY RATIOS
A. FROM OWNERS POINT OF VIEW
6.A.a. RETURN ON
Profit after taxes
EQUITY (ROE)
--------------------Net worth **
** Net worth = Average shareholders equity
(including reserves)
RETURN ON
EQUITY (using
DuPont model)

Net profit margin * Asset turnover * Equity


multiplier
NPAT Sales
Avg. Assets
-------- * --------------- * ---------------Sales Avg. Assets Net worth

6.A.b. EARNINGS PER


SHARE (EPS)

Net profit available to equity shareholders


--------------------------------------------------No. of equity shares

6.A.c.

Total profits distributed to equity shareholders


-------------------------------------------------------No. of equity shares

DIVIDENDS PER
SHARE

6.A.d. PRICE EARNINGS


(PE) RATIO

Closing Market price per share


-------------------------------------Earnings per share
OR
Average Market price per share
--------------------------------------Earnings per share

6.A.e.

DIVIDEND PAYOUT
RATIO

Dividend per equity share


-------------------------------Earnings per share
B. BASED ON ASSETS OR INVESTMENTS
6.B.a. RETURN ON
NOPAT
CAPITAL
-----------------------EMPLOYED (ROCE) Capital employed **
** Cap. employed = Fixed assets + Working capital
5

6.B.b. RETURN ON
ASSETS (ROA)

NPAT
---------------------------Average Total Assets
OR
NPAT
---------------------------Average Fixed Assets
OR
NPAT
-----------------------------Average Tangible Assets

C. BASED ON SALES
6.C.a. GROSS PROFIT (GP)
RATIO

Gross profit
---------------- * 100
Sales

6.C.b. PROFIT VOLUME


(PV) RATIO

Contribution
----------------- * 100
Sales

6.C.c.

Operating profit
-------------------- * 100
Sales

OPERATING
PROFIT RATIO

Operating profit = EBIT


NET PROFIT (NP)
RATIO

Net profit
---------------- * 100
Sales

D. BASED ON MARKET INFORMATION


6.D.a. PRICE EARNINGS
Closing Market price per share
(PE) RATIO
-------------------------------------Earnings per share
OR
Average Market price per share
--------------------------------------Earnings per share
6.D.b. YIELD

Dividend per share


-------------------------------------- * 100
Closing market price per share
OR
Dividend per share
6

-------------------------------------Average market price per share


6.D.c.

MARKET VALUE /
BOOK VALUE PER
SHARE

Closing market price per share


-------------------------------------Book value per share **
OR
Average market price per share
-------------------------------------Book value per share **
** Book value per share = Net worth
------------------------No. of equity shares
= Equity + Reserves
------------------------No. of equity shares